Subway is selling itself to private equity Roark Capital for $9.55 billion after a long-drawn auction that attracted several competing bids.
Deal particulars
The deal was valued at $8.95 billion, excluding the earn-out target, sources said.
Roark and Subway have to close the deal in 12 months.
It involves a 4% breakup fee which covers the possibility of antitrust regulators thwarting the deal.
Roark outbid a late challenge from a rival bidding group led by TDR Capital and Sycamore Partners.
Both had submitted a final bid of $8.75 billion or $8.25 billion excluding an earn-out.
The incoming owner
The deal will make Roark Capital one of the largest restaurant operators in the world.
It controls Inspire Brands, the owner of restaurant chains including Jimmy John’s, Arby’s, Baskin-Robbins and Buffalo Wild Wings.
It brings to the table its expertise in helping restaurant brands grow, “especially in the U.S. market where it remains well below the peak it hit a few years ago”, said Neil Saunders, managing director of GlobalData.
US business
Subway had hoped to fetch more than $10 billion, owing to its strong brand and international business.
However the bids countered a lower valuation as they deemed its U.S. business saturated.
Since its launch in 1965, Subway had to struggle with competition from rivals for several years.
It started to make a turnaround after revamping its menu and increased marketing spend in 2021.
Its efforts bore fruit as Subway’s same-store sales in North America rose 9.3% in the first half of 2023.
Next steps
Subway now has to attach conditions to some of the windfall the two owning families will get.
These are known as an earn-out, which postpones payment on part of the deal consideration.
To get the full price, certain milestones will have to be reached over a specified period after the deal closes.